With bond-stock correlations reaching record highs (and broad risk parity fund performance deteriorating rapidly), Ray Dalio’s $150 billion Bridgewater Associates managed modest gains across its main strategies last month – even as macro funds have suffered amid policy and political uncertainty. However, the manager of the world's largest hedge fund warns “Investment returns will be very low going forward,” in his latest investor remarks, suggesting that betting on gold could prove preferable.

Bond-Stock Correlation hovers near record highs

And while broad-based risk-parity funds are losing ground, Bridgewaters' risk-parity All Weather fund, which seeks protection from market turmoil by investing in a combination of stocks, bonds and currencies, gained 0.9 percent last month, increasing its return this year to 14.1 percent, the person said. Bridgewater declined to comment on its returns.

But, until the last month, cross-asset-class correlation was also at an extreme high relative to the printing press of global central banks…

Macro hedge funds have suffered in the face of persistently low interest rates in the U.S. and Europe and this undiversifiable and irrational correlation. They fell 0.3 percent last month, bringing this year’s gains to 1.8 percent on average, compared to a 4.2 percent return for the industry, according to Hedge Fund Research Inc.

Dalio has warned for some time that the economy is at the end of a long-term debt cycle, characterized by a lack of spending despite interest rates near zero or even negative.

He said at a seminar last week at the Federal Reserve Bank of New York that while central banks around the world will probably extend bond-buying programs, making higher-yielding assets seem attractive relative to bonds and cash, those investments are still expensive relative to their inherent risk.

If that persists, betting on gold could prove preferable, he said.

Simply put, he concludes:

“Investment returns will be very low going forward,” he said, according to a copy of his remarks.